decided: December 28, 1979.
UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
AZZARELLI CONSTRUCTION CO. AND JOHN F. AZZARELLI, DEFENDANTS-APPELLANTS.
Appeal from the United States District Court for the Eastern District of Illinois, East St. Louis Division. No. 78-Cr.-20 -- James L. Foreman, Judge.
Before Pell and Bauer, Circuit Judges, and Dumbauld, Senior District Judge.*fn*
Appellants Azzarelli Construction Company, and John F. Azzarelli, its vice-president, where convicted of bid-rigging on three highway projects in Illinois in violation of Section 1 of the Sherman Act, 15 U.S.C. 1, and of twelve counts of mail fraud in violation of 18 U.S.C. 1341. The corporation was fined $200,000 on the antitrust count and a total of $12,000 on the mail fraud counts. Azzarelli was fined $25,000 and sentenced to a suspended two-year prison term with three years' probation after serving the first ninety days.
Other defendants indicted are not involved in this appeal. Azzarelli's brother Joseph, president of the company, was acquitted by the jury. Central States Engineering, Inc. was acquitted of mail fraud charges but convicted of the antitrust violation, and has not appealed. Loitz Brothers Construction Company, and its affiliate Kankakee Paving Corporation pleaded guilty to the Sherman Act count and to one count of mail fraud.
The dealings which led to the collusive bids were conducted by Lawrence Loitz for Loitz Brothers and Kankakee Paving, by Larry Boettcher for Central States, and by John Azzarelli for Azzarelli Construction Company. The three men carried on their discussions at a hotel in Springfield the day before the bidding was to take place.
I THE SHERMAN ACT
The Sherman Antitrust Act of July 2, 1890, 26 Stat. 209, 15 U.S.C. 1, has been likened to a charter of economic liberty, expressing a national policy akin to constitutional principles in importance and impact upon the general welfare.
As well stated by the late Mr. Justice Hugo Black:
The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions. But even were that premise open to question, the policy unequivocally laid down by the Act is competition. And to this end it prohibits "Every contract, combination * * * or conspiracy, in restraint of trade or commerce among the several States." Although this prohibition is literally all-encompassing, the courts have construed it as precluding only those contracts or combinations which "unreasonably" restrain competition. Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (31 S. Ct. 502, 55 L. Ed. 619;) Chicago Board of Trade v. United States, 246 U.S. 231 (38 S. Ct. 242, 62 L. Ed. 683).
However, there are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. This principle of per se unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable an inquiry so often wholly fruitless when undertaken. Among the practices which the courts have heretofore deemed to be unlawful in and of themselves are price fixing, United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 210, 60 S. Ct. 811, 838, 84 L. Ed. 1129; division of markets, United States v. Addyston Pipe & Steel Co., 6 Cir., 85 F. 271, 46 L.R.A. 122, affirmed 175 U.S. 211 (, 20 S. Ct. 96, 44 L. Ed. 136;) group boycotts, Fashion Originators' Guild v. Federal Trade Comm., 312 U.S. 457 (, 468, 61 S. Ct. 703, 85 L. Ed. 949;) and tying arrangements, International Salt Co. v. United States, 332 U.S. 392 (, 68 S. Ct. 12, 92 L. Ed. 20).*fn1
The case at bar is a typical or classical example of division of markets or allocation of business by bid-rigging which has been recognized as a Per se violation since the Taft opinion in Addyston Pipe. Able defense counsel ingeniously seeks to modify the traditional contours of Per se violations by inserting an additional element in the definition of such an offense.
The contention is thus formulated in appellants' brief (p. 56): "To invoke the Per se rule . . . the Government is required to prove not only a price-fixing, bid-rigging or job allocation agreement, but it must also prove, as an element of the offense, that the conspiratorial activities involved transactions In the flow of interstate commerce.*fn2 "
In other words, appellants argue that a Per se violation can occur only in a "flow" of commerce situation, and not in an "affecting" commerce situation. This argument, unsupported by authority, is untenable. It confuses the type of Restraint ("Per se " or "unreasonable") with the type of nexus with Commerce ("in" or "affecting").
With respect to the restraints forbidden by § 1 of the Sherman Act*fn3 the cases have recognized that in enacting § 1 Congress "wanted to go to the utmost extent of its Constitutional power" and hence that "however local its immediate object, a "contract, combination . . . or conspiracy' nonetheless may constitute a restraint within the meaning of § 1 if it substantially and adversely affects interstate commerce."*fn4
Goldfarb v. Va. State Bar, 421 U.S. 773, 780, 784-85, 95 S. Ct. 2004, 44 L. Ed. 2d 572 (1975), obviously is inconsistent with appellants' contention. That was a Per se price-fixing case (with respect to fees charged by lawyers for title searches, a local activity) and was likewise a case "affecting" interstate commerce.*fn5
We now turn to appellants' most plausible contention, that the evidence in the case shows that the interstate commerce affected had terminated, by reason of processing which transformed the nature of the material moving in interstate commerce. Appellants produced an expert witness to prove chemical and molecular change, or the creation of a new product, when crude oil and asphaltic cement were combined to make the bituminous concrete used in the highway construction affected by appellants' rigged bids.
It is doubtful whether, even under the "flow" theory such a change would suffice to render § 1 of the Sherman Act inapplicable. In Swift & Co. v. U. S., 196 U.S. 375, 399, 25 S. Ct. 276, 49 L. Ed. 518 (1905), Mr. Justice Holmes considered fresh meat (as well as cattle) subject to injunction under the antitrust law. And clearly, under the "affecting commerce" theory (which in the case at bar was adequately presented to the jury, unlike Las Vegas Merchant Plumbers Assn. v. U. S., 210 F.2d 732, 746-47 (C.A. 9, 1954)), the restraint could be one which operated either before, during, or after the interstate movement.*fn6 In similar vein, the eloquent dissent of Mr. Justice Holmes in Hammer v. Dagenhart, 247 U.S. 251, 38 S. Ct. 529, 62 L. Ed. 1101 (1918), refuted the majority view in that case that commerce in goods produced by child labor was unlike situations where "the use of interstate transportation was necessary to the accomplishment of harmful results. "*fn7 Holmes retorted: "It does not matter whether the supposed evil precedes or follows the transportation. It is enough that in the opinion of Congress the transportation encourages the evil."*fn8
Appellants' contention falls within the category of "mechanical distinctions" condemned in Mandeville Island Farms v. American Crystal Sugar Co., 334 U.S. 219, 229, 68 S. Ct. 996, 1002, 92 L. Ed. 1328 (1948). Such artificial separation of production and manufacturing from commerce "without regard to their economic continuity" would be a "reversion to conceptions formerly held*fn9 but no longer effective to restrict either Congress' power . . . or the scope of the Sherman Act's coverage." Such a reversion to outmoded concepts, rejected in Mandeville almost forty years ago, is A fortiori unavailing now. In Mandeville the distinction was between sugar beets and manufactured sugar. The Court was not impressed by this transformation, and applied the doctrine of Wickard v. Filburn which had dealt with an "identical commodity (wheat) from the planting stage through the phase of interstate distribution." 334 U.S. at 237, 68 S. Ct. at 1007. The Court concludes that "mere change in the form of the commodity or even complete change in essential quality by intermediate refining, processing or manufacturing does not defeat application of the statute . . . .*fn10 Again, as we have said, the vital thing is the effect on commerce, not the precise point at which the restraint occurs or begins to take effect . . . . Hence . . . the mere fact that the price fixing related directly to the beets did not sever or render insubstantial its effect subsequently in the sale of sugar." 334 U.S. at 238, 68 S. Ct. at 1007. Similarly it seems clear that in the case at bar the fact that the price fixing impinged on the new product (asphalt concrete) rather than the ingredients thereof did not diminish its impact or render insubstantial its effect on the sale of crude oil and asphaltic cement in interstate commerce.
One type of substantial effect upon interstate commerce in the materials used for road construction in Illinois flows from the diminished funding available for highway construction, by reason of the impact of appellants' conspiracy to submit bids at non-competitive prices. This type of harmful effect upon interstate commerce suffices in antitrust cases, as well as in cases involving other types of obstruction to interstate commerce.*fn11 Hospital Building Co. v. Rex Hospital Trustees, 425 U.S. 738, 744-45, 96 S. Ct. 1848, 48 L. Ed. 2d 338 (1976); Burke v. Ford, 389 U.S. 320, 321-22, 88 S. Ct. 443, 19 L. Ed. 2d 554 (1967);*fn12 U. S. v. Finis P. Ernest, Inc., 509 F.2d 1256, 1261 (C.A. 7, 1975); Doctors, Inc. v. Blue Cross, 490 F.2d 48, 51-53 (C.A. 3, 1973). It is undeniable that appellants' conspiracy by increasing the cost of highway projects using asphalt concrete made from crude oil and asphaltic cement moving in interstate commerce substantially and adversely affected such commerce in those commodities. These highway construction projects obviously had more than a De minimis effect on interstate commerce. The total of the lowest bids on the three items involved was $3,192,085.54. (In the Ernest case the amount of plaintiffs interstate purchases of supplies was only $9,307. 509 F.2d at 1261).
II ADMISSIBILITY AND SUFFICIENCY OF EVIDENCE
Appellants further contend that declarations of coconspirators were improperly received. It is asserted that a pre-trial determination, akin to a motion to suppress, should have been made; and that findings should have been made showing why the evidence was admitted. These steps are not required by the Federal Rules of Evidence or by this Court's decision in U. S. v. Santiago, 582 F.2d 1128, 1131-36 (C.A. 7, 1978).
The normal practice, it would seem, would be for a defendant to object at the time the challenged statement is offered. Thereupon, either during a recess granted the jurors or at side bar outside their hearing, counsel would present their respective reviews of the nature and effect of the state of the record with respect to the existence of sufficient evidence Aliunde to justify admission of the testimony, and the court would rule. Ordinarily a ruling in favor of admissibility would constitute a determination by the trial judge that the standard set forth in Santiago had been met.*fn13 In the case at bar the trial judge sufficiently indicated his determination that the Santiago requirements had been complied with.
Appellant's argument that there is insufficient evidence to establish a violation of § 1 of the Sherman Act is utterly unmeritorious. The record clearly established collusive allocation of three highway construction contracts.
At the bidding on July 29, 1975, item 25 went to Loitz, who was the only bidder. Azzarelli had agreed to let Loitz have it in reciprocity for a prior contract awarded to Azzarelli several months before. Loitz agreed that Azzarelli (who turned out to be the only bidder) was to get item 26. Loitz also got item 27, on which both Azzarelli and Boettcher submitted high bids, "out of the ball park." Boettcher increased his bid by $1,000,000, and received "payola" of $7500 from Loitz in return for letting the item go to Loitz.*fn14 The charge of bid-rigging was abundantly proved.
Moreover, there was no possible purpose for appellants' collusion other than to control the allocation of the contracts to the respective collusive bidders. Appellants do not pretend that their price-fixing scheme was engaged in for the ostensible purpose of establishing a "meeting competition defense" under the Robinson-Patman Act, as was contended by defendants in U. S. v. U. S. Gypsum Co., 438 U.S. 422, 454-58, 98 S. Ct. 2864, 57 L. Ed. 2d 854 (1978). Appellants' reliance on that case is utterly unpersuasive. Indeed, the conduct of appellants abundantly satisfies the Gypsum standard that although criminal offenses under the Sherman Act should be "construed as including intent as an element" (438 U.S. at 443, 98 S. Ct. at 2876), nevertheless "action undertaken with knowledge of its probable consequences and having the requisite anticompetitive effects can be a sufficient predicate for a finding of criminal liability under the antitrust laws." 438 U.S. at 444, 98 S. Ct. at 2877. Clearly the appellants were "consciously behaving in a way the law prohibits." 438 U.S. at 445, 98 S. Ct. at 2877. Their attention was specifically called to the illegality of collusive bidding when they executed affidavits denying the existence of such behavior. It is impossible to infer lack of the requisite intent or Mens rea in their conduct.
III MAIL FRAUD COUNTS
The counts in the indictment dealing with mail fraud also resulted in valid convictions. To prove this charge*fn15 the Government must establish (1) a scheme to defraud, and (2) use of the mails for the purpose of executing the scheme. Pereira v. U. S., 347 U.S. 1, 9, 74 S. Ct. 358, 98 L. Ed. 435 (1954).*fn16
Appellants argue that an antitrust conviction constitutes an exclusive remedy for anticompetitive conduct and precludes prosecution under the mail fraud statute. While under many circumstances a violation of the antitrust laws might occur without involving any fraudulent conduct, there may also be circumstances where fraud is an ingredient of the anticompetitive scheme.
The circumstances of the case at bar, involving collusion to defeat a statutory scheme of competitive bidding prescribed in the public interest by the federal Government and the State of Illinois in order to obtain for taxpayers the lowest possible costs for public works being undertaken, plainly manifest a species of fraud or false representation. This is particularly true where, as here, the bidders were required by law to sign (and did sign) statements that no collusion had been practiced. Under these circumstances appellants' conduct was not only anticompetitive but also fraudulent. Since the two crimes required proof of different facts, conviction of one did not preclude simultaneous conviction for the other. Gavieres v. U. S., 220 U.S. 338, 342-43, 31 S. Ct. 421, 55 L. Ed. 489 (1911); Carter v. McClaughry, 183 U.S. 365, 394-95, 22 S. Ct. 181, 46 L. Ed. 236 (1902).
Accordingly, the judgment of the District Court is affirmed.